Money goes in, money goes out—it seemed straightforward

Growing up, I didn't think much about finances beyond the basics. Money came in, money went out—it seemed straightforward. But as I started managing my own life, the complexities of finance began to unfold. My wake-up call came when I had to confront the gap in my own understanding and how it impacted my financial decisions.

I realized I wasn’t alone; only about 33% of adults globally are considered financially literate. That means two-thirds of the population are missing essential knowledge about things like inflation, interest rates, and investment risks. When I understood what I didn’t know, I began seeing the very real consequences that financial illiteracy can have, not just for me but for entire communities.

Financial Literacy: What Does It Mean?

Financial literacy is about understanding and using financial skills—budgeting, saving, investing, and recognizing how economic forces impact decisions. If you're financially literate, you're equipped to make smarter decisions, reduce stress, and build a more stable future. Without this knowledge, navigating finances is like walking through a maze blindfolded, hoping to stumble onto the right path.

Let me break down a few key concepts that have personally helped me (and may help you, too):

Budgeting: Knowing how much you earn, spend, and save is the foundation. A budget lets you see where every dollar goes and helps you control your finances instead of letting them control you.

Saving: We need funds set aside not just for big dreams but for emergencies, too. A simple rule of thumb: aim for at least three to six months of expenses saved up.

Debt Management: Credit can be a tool, but without knowing how to manage it, it quickly becomes a burden. Understanding interest rates and payment terms is crucial to avoid debt spirals.

Investing: Growing your wealth means making it work for you. Knowing your options—stocks, bonds, real estate—and understanding risk is how you can start building long-term stability.

Inflation: Prices don’t stay the same over time, which means the money you save now will be worth less in the future. Understanding inflation can help you strategize to protect your purchasing power.

Risk Diversification: Not putting all your financial eggs in one basket can shield you from significant losses. Spreading investments across different assets can bring stability.

Why Ignoring Financial Literacy is Risky

The consequences of financial illiteracy extend far beyond the personal. Here’s what I learned, based on my experiences and some common pitfalls that I’ve seen affect people around me:

Poor Money Management and Increased Debt: Without budgeting knowledge, it’s easy to fall into a cycle of spending more than you earn. Credit card balances grow, and with high-interest rates, paying them off becomes even harder. For example, the average U.S. household with credit card debt owes around $7,486. High-interest debt like this can make it feel impossible to get ahead.

Limited Ability to Plan for the Future: Without understanding financial planning, saving for big life goals—like buying a house, funding education, or planning for retirement—often falls by the wayside. A survey by the Transamerica Center for Retirement Studies found that 40% of workers feel they are behind on retirement savings. This lack of preparedness forces many to work longer than they want or to rely heavily on Social Security.

Vulnerability to Economic Shifts: When inflation rises or interest rates change, understanding how these shifts affect your money is key to staying afloat. I learned this when inflation hit my budget hard, and I realized I hadn’t prepared for rising costs. Ignoring these fundamentals can leave you financially stranded during tough economic times.

Missed Investment Opportunities: Investing can be intimidating without a basic understanding of risk diversification. It’s common for people to either avoid investing altogether out of fear or to invest heavily in one area, which can lead to financial loss. The power of diversified investments became clear to me once I took the time to understand how to minimize risk.

Steps I Took to Build My Financial Literacy

Educate Myself: I started with free resources like Investopedia and financial podcasts to get a broad understanding of key financial concepts. Websites like the Financial Industry Regulatory Authority (FINRA) and the Consumer Financial Protection Bureau (CFPB) also offer solid information.

Budget and Save Consistently: I committed to a monthly budget and put aside a portion of my income into a savings account. Even small, consistent contributions started adding up, and seeing my savings grow motivated me to keep going.

Seek Professional Advice: At one point, I felt overwhelmed by my options for saving and investing. Consulting a financial advisor provided me with insights tailored to my financial goals, helping me create a realistic plan.

Regular Practice and Review: Building financial literacy isn’t a one-time thing. I make it a point to review my finances monthly and adjust based on my goals. Over time, I’ve found that financial literacy is like any other skill—the more you practice, the better you get.

The Big Lesson

Taking control of my financial literacy has been one of the most empowering steps in my life. Financial literacy doesn’t just mean managing money better; it means building confidence, reducing stress, and securing a future on my own terms. Today, I share these insights to encourage others to start or continue their own financial education journey. It’s never too early—or too late—to take charge of your financial future.